Rwandan banks growing exponentially, but not taped into abundant opportunities

KIGALI-RWANDA-Rwanda’s banking sector, regarded as a virgin industry, recorded modest profits in the first quarter of 2014, thanks to a cash-hungry economy recovering from the 2013 slump.

The sector recorded Rwf700m in total profits during the first three months to hit Rwf8.8 billion (approx. $10m) measured against last year’s Rwf8.1b, Rwanda’s central bank announced two weeks ago.

However, due to a mild contraction caused by aid suspension, only Rwf1.06 trillion (approx. 1.5b) deposits were recorded from Rwf866.4billion (approx. 1.2b) of same period 2013.

The loan portfolio helped the industry bounce back from the slump, increasing to Rwf269.8 billion (approx. $384m) in the first five months from Rwf185.1 billion (approx.264m) of 2013 due to a slight decline on lending rates.

As a result, total assets in the industry increased to Rwf1.5 trillion (approx.2.1b) from Rwf1.3trillion (approx.1.8b) of same period, 2013. The economy grew by 7.4%.

Central Bank Governor, John Rwangombwa, attributed the recovery to his monetary and fiscal stimulus policies. He temporarily allowed banks to raise funds at friendly rates, on conditioned they would lend at relatively reasonable rates too.

As a result, deposit rate declined to 10.1% from 10.61 % while lending rates dropped to 17.23 % from 17.65%. BK is experiencing an exponential reflected in its healthy profits.

Indeed, Rwanda’s leading bank, Bank of Kigali, announced 40% profits in the first quarter. It had Rwf3.5 billion (about $5million) profits in the first quarter, 2013.

The bank’s Chief Operating Officer, Lawson Naibo said he expects, though, to make 25% at the end of 2014. “The market is picking up, liquidity is increasing and we are looking at recording up to 50% increase in deposits.”

Massive potential

Rwanda’s banking sector has immense potential, economists say, blaming banks for financially excluding the largest market, the rural folks, and squeezing every little penny out of clients; largely the slim corporate market, to make rooftop profits.

Less accounts means banks have inflated rates. Lending rates, for example, range between 17 and 21% and not more than 7% for depositors, many of them offering 5%.

Rwanda cannot achieve what it wants if banks continue working like this, an official at VISA-Rwanda said. “There is massive opportunity, but banks are not pushing for the use of automated cards.”

Bank of Kigali, valued at $670m and listed on the Rwanda Stock Exchange (RSE), is the largest bank in terms of assets and market share. Ecobank, Access Bank, and Guaranty Trust Bank (GT Bank) all from West Africa and three Kenyan banks, Kenya Commercial Bank, Equity Bank and I&M Bank, with growing presence in other East African countries, are now pushing to cover for the retail segment. Uganda’s Crane Bank has also opened a subsidiary in Kigali City.

Their entrance into Rwanda has not met the market’s expectations, despite facing less risks and having large volumes of deposits.

Rwanda is roughly $8b GDP; the only such a small economy where VISA has invested as it has. With ten commercial banks, four microfinance banks, a cooperative bank and a development bank, all connected to VISA’s global network, foreign visitors spend and boost the economy and trigger tourism receipts.

The government, which used to be the largest borrower, has started outsourcing funds from selling bonds, triggering a swing in the sector. As a result of not purchasing treasury bills, said BK’s Naibo, “there is now more cash for investors.” In the first quarter, banks had 46.3% liquidity against central bank’s desired 20%.